U.S. border town fights new sales-tax break for Canadians

By Bill Mann

Talk about paradoxes.

A Canadian shopping mecca, the border town of Bellingham, Wash. –sitting just south of Vancouver — has sued the state over a recent tax ruling that would let Canadian cross-border shoppers get a tax break of almost 10 percent. American shoppers in Canada get no such break.

Bellingham merchants don’t like the recent suit by their city and its Whatcom County to block the sales-tax exemption that its state Revenue Department (which is strapped for cash, another paradox) recently ruled is due B.C. residents as of July 1, when B.C. adopted a controversial HST (for Harmonized Sales Tax) combining federal and B.C. sales taxes. A 45-year-old Washington law allows merchants to make tax-exempt retail-goods sales to people from places with little or no sales tax. The law doesn’t apply to hotels and restaurants. Technically, the HST is a value-added tax.

Residents of a few provinces with HST’s in eastern Canada, like Quebec and Nova Scotia, have long gotten the Washington sales-tax break (yes, there are forms to fill out). It was no big deal — that is, until a nearby province, B.C., adopted the HST.

What’s the reason?

So, why would big-box shopping destination Bellingham and the county protest a tax break to some of their biggest shoppers? Wouldn’t that help business in a down economy?

Because, explains Bellingham Mayor Dan Pike, the tax break will just make things worse for the struggling local economy, costing the layoff-plagued city and county from $1.1 to $$2.5 million in sales-tax rebates from the state in the next three years. Another paradox: Washington has a projected $3 billion shortfall. It could use the Canadians’ sales taxes.

The state’s Revenue Department admits the timing of all this could be better, and admits that Washington state could lose $10 million annually in sales-tax proceeds by exempting B.C. residents — while adding that it doesn’t take into account potential for increased Canadian shopping in Washington. In fact, a recent poll in the province found that, predictably, a majority of B.C. residents said a U.S. tax break would make them more likely to come south to shop.

Shopping in the U.S. a tradition

However, they already do. In droves. The stronger Canadian dollar in recent years has opened a floodgate of Canadian shoppers even further.

“The Canadian dollar is strong relative to the U.S. dollar, and a lot of that has to do with the fact that the Canadian economy has weathered the recession a lot better than the U.S. economy,” Paul Storer, who chairs the economics department at Bellingham’s Western Washington University, told The Seattle Times.

And there’s another reason the lack of a tax exemption probably won’t hurt border shopping much if at all

Canadians have overpaid — or have been gouged — on many major stores’ prices in Canada for years. It’s always said that the smaller volume of Canadian retail stores is the reason. Just go to, say, a Wal-Mart in the U.S. and one in Canada and compare prices on the same item.

I tuned in a talk show on popular Vancouver newstalk station CKNW one day last week. The host asked listeners to call in and tell him if they generally paid better — or worse — prices by shopping in the U.S. Not one caller said he paid less in Canada. One Vancouverite said he’d saved $10,000 by buying his pickup truck in Texas. Another said he recently bought six fishing rods and reels at a sporting-goods store in Bellingham — for less than 20 percent of what he’d pay for them in Canada (that’s why he bought so many).

Shopping in the U.S. is almost as much of a Canadian tradition as watching hockey games. A tax break — either way — probably isn’t going to change that.